Price Comparisons

February 16, 2012

Hospitals are increasingly interested in understanding their relative price position. With the increase in consumer based purchasing decisions, the sensitivity of pricing has increased.

The traditional model of pricing analytics is to compare prices line-by-line, service-by-service. Hospitals then look at individual prices of services that they feel compete with independent labs, imaging, centers and other providers. However, this is not how patients buy many services. Most healthcare services are not purchased, or priced, one at a time. As payers and ACOs look at bundled payments the challenge to hospitals is to correspondingly understand bundled charges.

Hospitals deliver services in bundles. Essentially, there is generally a primary service and there are ancillary or support services. For example, if I come into the emergency room with a fractured arm, there will likely be other charges for casting, imaging, drugs, and potentially supplies. To compare typically non-emergent services such as a diagnostic colonoscopy, a hospital or patient would need to look at the services provided with the procedure.

Having access to the procedure code price alone, however, does not answer the question. There are also drug, supply, and possibly pathology charges. What if we were to create a Hospital Price Index ™ that could take these services and assign them to the primary service? This would create a comparative that mattered.

After identifying the average accompanying services for primary services and including those charges in the comparison, we now have a much better feel for how the prices stack up to the market.

This approach will allow hospitals to develop strategies around how they charge for a complete service, not just the individual components.

AppRev is now using this approach to develop rules for our Pricing Analytics solution

By: Seth Avery, Chief Executive Officer

Solutions for Bundled Payments

October 5, 2011

With Centers for Medicare and Medicaid Service’s continued interest in the creation of bundled payment system, providers will be at increasing risk of unanticipated impact.  The Bundled Payments for Care Improvement initiative is an attempt to improve quality and reduce cost by providing a single payment for multiple providers within one episode of care.  The goal of improved coordination between hospitals and physicians is expected to be realized by aligning the financial outcome for the two groups.

Providers interested in such initiatives may also wish to create a pricing strategy to take advantage of the new reimbursement terms.  Although this may be a wise course, providers should consider the potential impact on all payers’ reimbursements.  As long as the hospital fee structure ties to one price for each service, changes in strategy will impact all payers.  The ability to model and develop strategies around all payers is critical to the success of such initiatives.  At Applied Revenue Analytics,  we are able to model such strategies with unparalleled accuracy.

Historically, a hospital’s success has had little to do with the ability to develop a pricing strategy.  With the introduction of episode-based reimbursement, there is an opportunity to design a pricing strategy around such episodes.  Hospitals have spent much time understanding what they will “accept “ in managed care agreements, but little time on what pricing can do to the competitive landscape.  What if a hospital could develop one set of prices, to all payers including self pay, for endoscopy procedures?   Would that change the marketing process for that hospital?  The ability to accurately calculate the change in net and gross revenue for various strategies becomes paramount to the deployment of those strategies.  Factors such as volume of the current mix of services by payer and their associated payment terms must be considered.  Our hypothetical endoscopy usually involves services from at least five different clinical departments.  Professional services could also be put in the mix.

Bundling of services offers providers and payers an opportunity to transform healthcare, service by service, from a customized product built one by one to a uniform quality service with predicable financial and quality outcomes.

Written by: Seth Avery, Chief Executive Officer

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